#23
Thoughts and life updates
I write this letter to share some of the things I’m working on and thinking about. A little about me:
I own and manage a digital agency in Toronto called August, where we design and build websites and apps. We spend about 80% of our time on client work and the balance on internal projects. Most recently, we’ve been working on an AI-powered 311 app for municipalities, and a directory of real estate vendors called Buildstack (think: Builtwith for buildings). I also invest in and develop real estate with my two brothers.
some thoughts
When considering policy reform that would allow for much more missing middle housing in the city, many advocates, analysts, urban planners, and councillors take a look around, see a city of mostly one and two-storey detached houses, and think, “these should and could very easily be three storey multiunit buildings”. They then propose new policy, as they have in Toronto, to allow for three-storey multiunit buildings as-of-right in all residential areas.
This is not the right way to think about it. Let me explain.
For there to be many redevelopments of one and two-storey detached houses to missing middle housing, developers need to be able to outbid families for these houses at scale. This is a big challenge as families arguably have the lowest possible cost of capital—they’ll buy houses that they really like and can envision themselves growing old in at prices that don’t make any economic sense.
Developers by contrast need their projects to pencil. They work backward from the expected rental income net of operating expenses (Net Operating Income, or NOI) in their new missing middle building to a pro forma and residual land value. That residual land value is the highest price they can bid for the detached house.
The higher the NOI, the higher the residual land value, and the more they can bid on any given detached house that is put up for sale.
A 30% increase in permitted density is generally not enough to move the needle when accounting for the costs you’ll incur to realize that 30% increase in density. Sure, it’ll allow the odd homeowner to undertake a renovation and conversion themself, but it won’t unlock a new repeatable and scalable business model for the wannabe missing middle developer.
If we want much more missing middle housing in our city, we need to unlock a repeatable and scalable business model for wannabe missing middle developers.
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I’ve mentioned in past newsletters that I’d like to host a Missing Middle Summit in Toronto. This would provide a venue for builders and aspiring builders to learn from and connect with everyone they need to learn from and connect with to build more missing middle housing—think: realtors, urban planners, architects, engineers, lenders, general contractors, and more.
It would also provide a venue for advocates and policymakers to interact with this emerging industry, trade notes, and hopefully get real about policy reform.
Well, it’s happening. Thursday, May 25th, all day, at the Broadview Hotel. You can register for tickets here.
Check out this awesome ad my friend Bjoern produced for it:
https://twitter.com/ChrisSpoke/status/1649142675474378788 (*)
(*Apparently that tweet won’t embed because Elon Musk is fighting with Substack.)
business stuff
August: In our continued effort to refine our business development process, we’ve landed on a formula that I think makes for a good plan. Every month, we will 1) host 1 event, 2) submit proposals in response to 2 RFPs, and 3) schedule 4 lunches with interesting people who might be prospective clients. The 1-2-4 plan. And we’ll of course do all of the other standard blocking and tackling stuff in between, like exploring new opportunities with existing clients, responding to inbound interest, etc.
Doing the math, within a year, we’ll have hosted 12 events, submitted proposals in response to 24 RFPs, and scheduled 48 lunches with interesting people who might be prospective clients. That looks to me like a reasonable top-of-funnel, especially as the repeatability of these activities will ensure that we get better and better at doing them.
Want to have lunch?Buildstack: There’s this saying in the startup world that you shouldn’t try to boil the ocean. That is, don’t try and be everything to everyone. It’s too much. Instead, zoom in on a subset of a subset of your total addressable market to target and serve with all of your energy and resources. Especially in the early days. And especially if you’re building the sort of product that benefits from network effects, and therefore suffers from a cold start problem.
For Buildstack, we chose to zoom into Toronto’s real estate development industry. Of the 3,577 projects and 4,181 companies we have in our database, almost all are within the Greater Toronto Area. The product is of course designed to feature projects and companies from all over the world, but you need a critical mass within one geography for industry participants in that geography to find it helpful.
I now think that we need to zoom in even further. And I think this can be into missing middle housing. That is, we will continue to track all projects and companies in the area, but we will make a special effort to call everyone involved in any given missing middle development to gather as much data as possible for the most complete project profiles.
The Missing Middle Summit mentioned above will, of course, be a big part of this effort, as it will provide us with the profile and credibility in this subset of a subset of our total addressable market to get the most out of it.
real estate stuff
FH1*: I promised in last month’s newsletter that I would share some progress photos, so here they are. You’re looking at our second floor, which has been stripped down to the studs, and our basement, which has been excavated with footings underpinned to accommodate an 8’ finished floor-to-ceiling height.
We’re expecting our full building permit this week. Next step: everything else. I’ll keep you posted.
MR1**: Mum continues to be the word on a potentially big development for this project. More soon! Sorry!
Other stuff: Many of you have reached out over the past month to learn more about the land assembly fund I’m pulling together with my brothers. If that’s you, thank you for your interest. I’ve replied to most but not all of you yet. Apologies to those who are waiting for a reply.
We’re still in the process of setting the fund up, with guidance from our lawyer and advisors, which has turned out to be a more complicated task than we anticipated. I guess that’s the nature of doing things for the first time. So, please bear with me while we get the details dialed in, and I promise to be in touch when there’s more of a concrete plan to report.
For those of you who don’t know what I’m referring to, please see this same section in last month’s newsletter.
*Forever Hold 1. A proposed four-storey multiunit rental building in Toronto’s west end that we plan on holding forever.
**Midrise 1. A proposed midrise multiunit residential building (tenure to be determined) in Toronto’s west end. We’re starting with a rezoning and will see where we take it from there.
stuff I’ve enjoyed
This is some of the content I’ve come across over the past month that’s worth sharing.
Article: Ginny Roth is maybe my favourite thinker and writer in Canada’s conservative movement. Easily top three. More than a writer, she’s a doer who gets involved in campaigns and on issues that she thinks are particularly important. This recent piece on some of the causes and consequences of declining fertility rates was both insightful and moving. There’s a certain kind of person that, as soon as they have kids, starts telling everyone else that they should have kids too. And I’m definitely one of them. Having kids is a hugely underrated undertaking these days, especially where I live in Toronto. As Ginny puts it: “Childbearing can precede the climax of your career, punctuating your life with meaning. Having children isn’t something you should tackle after you’ve tackled life. Having children is life.” You should read the whole thing.
Book: I’m continuing my streak of reading fewer books than I would like to. And shorter books than I would like to. This month’s book was Derek Sivers’ Anything You Want, which you could get through in under two hours. It was a good, light read with lessons on building a bootstrapped business from his CD Baby days. Here’s a passage that I particularly enjoyed:
“The happiest people are not lounging on beaches. They’re engaged in interesting work!
Following curiosity is much more fun than being idle. Even if you never have to work a day in your life.
That’s the best reason to start a company. It’s your playground, your instrument, your laboratory. It’s your place to play!
Get the ideas out of your head and into the world.”Podcast: Martin Shkreli on My First Million is as close as you can get to a self-recommending podcast for me. Martin’s blog through his prison years was some of my favourite writing on the internet at the time, though those posts have sadly been taken down since his release. In any case, you should check that episode out, as well as his youtube channel which is consistently fun and educational.
Video: This month’s video recommendation is a movie, and that movie is Tetris. It’s the true story of both Tetris and the Nintendo Gameboy, and it’s excellent. It reminds me a bit of The Founder in that it follows a determined entrepreneur through a series of almost insurmountable (and almost unbelievable) obstacles, which he of course surmounts. I’d love to build a list of more movies in this genre. Joy is another. Do you have any to recommend?
Some people dream of getting very rich so that they can buy a professional sports franchise. I dream of getting very rich so that I can produce a movie like this on Sam Zemmuray’s life.
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And that’s all for now. Here’s to a good and productive May.
Feel free to reply to this email with any comments or questions. I love chatting about everything mentioned above.